The small business guide to the Affordable Care Act (ACA)
If you’re a small business owner or decision-maker, you might be wondering how the Affordable Care Act (ACA) affects you. Specifically, you might want to know exactly what your legal responsibility is when providing health insurance to your employees. In this post, we break down the ACA, starting with the basics of the law and ending with its rules and provisions that directly impact small businesses.
What is the Affordable Care Act?
The ACA — sometimes called the Patient Protection and Affordable Care Act (PPACA), often referred to as Obamacare — is a healthcare reform law enacted in March 2010. It is still in effect today.
The overarching goal of the law was to increase the quality and accessibility of healthcare while lowering its cost. To do this, the ACA set out to:
- Give more people access to affordable health insurance, particularly individuals and small groups
- Expand Medicaid eligibility to include adults with household incomes below 133% of the federal poverty line
- Change the way medical decisions are made by supporting innovative treatment alternatives and care delivery methods
How did the Affordable Care Act reform the private health insurance market?
The law’s primary target was the private health insurance market. This is because the U.S. healthcare system is for-profit, and prior to the ACA, private insurance companies were free to minimize their risk to maximize their profit — which left millions of Americans uninsured or underinsured.
The ACA armed individuals and small groups with more insurance information and purchasing power, requiring insurance companies to take on more risk. It did the following in an attempt to drive healthcare costs down:
- Prohibited health insurers from refusing coverage to those with preexisting conditions
- Provided subsidies to millions of people to help them purchase individual coverage
- Created an online Marketplace that makes it easy for individuals to compare health plans from different insurers and purchase coverage
- Created an online marketplace called Small Business Health Options Program (SHOP), which allows small businesses to choose coverage options for their employees
- Placed a cap on the percentage of premiums that can be devoted to profit
How does the Affordable Care Act affect small businesses?
Access to the ACA marketplaces, alongside the other measures listed above, has had a net positive impact on small business health insurance, both in terms of accessibility and cost. The uninsured rate for small business employees fell approximately 10% after the ACA was implemented, and small business premium increases fell by about 50% post-ACA.
But, as part of its goal to expand access to affordable healthcare, the ACA also placed new legal requirements that every small business leader should be aware of. Knowing the rules and regulations below will help small businesses remain in good standing with the law.
The employer mandate
The employer mandate under the ACA requires employers with 50 or more full-time equivalent employees (FTEs) to offer health insurance that is both affordable and meets a minimum standard of value to 95% of their full-time employees and their children — or face paying a fine to the IRS called the employer shared responsibility payment.
A health plan meets the minimum value and affordability requirements if:
- It pays at least 60% of the cost of covered services (deductibles, copays, and coinsurance)
- Employee contributions for employee-only coverage do not exceed a designated percentage of the employee’s household income
Employers with fewer than 50 FTEs are not required to offer health insurance to employees — but if they choose to, they must offer it to all FTEs. When calculating FTEs, multiple part-time employees can add up to one full-time employee in the eyes of the IRS.
Small Business Health Options Program (SHOP)
The ACA introduced an online marketplace called SHOP as a new way for eligible small businesses to choose health and dental coverage for their employees. In most states, employers are eligible to use SHOP if they have 50 or fewer FTEs. In California, Colorado, New York, and Vermont, SHOP is an option for employers with up to 100 FTEs. There is no limited enrollment period for SHOP, so employers can start offering benefits any time of the year.
The SHOP marketplace has changed considerably since its creation. It is no longer available in every state as it was originally, and there has been a decline of insurer participation in the program. As of 2018, employers can no longer use the marketplace to enroll in SHOP plans. They can either enroll through an insurance company directly or with the assistance of a SHOP-registered agent or broker.
Small business healthcare tax credit
Offering a SHOP plan is the only way employers can qualify for the small business healthcare tax credit. In addition to offering a SHOP plan, employers must:
- Have fewer than 25 FTEs
- Pay average wages of less than $50,000 per year per FTE (indexed annually for inflation)
- Pay at least 50% of the cost of employee-only coverage
Required reporting about the marketplace to employees
Whether or not they offer health coverage to employees, employers covered by the Fair Labor Standards Act (FLSA) must provide a notice to employees that contains information about the health insurance marketplace in their state(s). The notice can be delivered electronically or by hard copy, and new hires must receive it within their first two weeks of work.
Required reporting about health coverage to the IRS
Certain employers are required to report to the IRS whether or not they offered employee health coverage. If they did, they must provide information about the coverage they offered.
90-day maximum waiting period
If employers offer health coverage, the ACA bans waiting periods longer than 90 days. This means that, after an employee is determined to be eligible for coverage, it must not take longer than 90 days for the employee’s benefits to take full effect. The waiting period begins on the employee’s enrollment date and includes all calendar days, including holidays and weekends.
Summary of Benefits and Coverage (SBC) disclosure
Employers who offer coverage must give employees a standard SBC form that breaks down what their health insurance plan covers and how much it costs — or risk paying a penalty.
The ACA incentivizes employers to participate in health-contingent employee wellness programs in connection with their group health plans. The maximum reward an employer can receive is 30% of the cost of its health plan, or 50% in the case of programs intended to curb tobacco use.
Now that you are up to speed on what the ACA requires of your small business, it’s time to explore your various health insurance options. Even if you’re not required by law to offer benefits to your employees, choosing to do so is one of the most important investments you can make as a small business leader.
In a competitive labor market, it can help you recruit and retain top talent. When employees don’t feel valued, they leave. And losing an employee is costly: On average, it costs $1,500 to replace an hourly worker, and 100% to 150% of the employee’s salary to replace a technical worker. Offering great benefits is one way to let employees know how much you value them.
Once you decide to offer benefits, choosing the right insurer can save your business time, money, and a lot of headache. If you meet the eligibility requirements, SHOP is one of many places to start looking if it’s available in your state.
But whether you’re new to employee benefits or a seasoned veteran, and whether you have 5, 50, or 500 employees, know that your options always extend beyond the traditional insurance carriers and what you see on the marketplace. Modern insurance companies like Sana use an intuitive dashboard and superior customer service to make offering high-quality health benefits easy and affordable for small businesses.